In a call for full disclosure and financial responsibility, a Regional Medical Center trustee on Tuesday questioned the hospital’s selection of an information technology company earlier this year.
Hospital officials say the contract given to Missouri-based Cerner Corp. in April was brought before the entire board for a vote. Trustees decided the Cerner contract was the best option for the hospital’s needs, officials say.
But trustee Danny Covington said the Cerner bid was not the lowest the hospital received.
Cerner was contracted to provide an integrated system for the hospital’s IT functions to create a seamless information database and less chance for system malfunction.
Covington said the bid by Massachusetts-based Meditech Information Technology, afterdiscounts, was about $4.5 million compared to the Cerner bid of about $12 million.
“I don’t believe we got the low bid, folks,” Covington said, expressing his concern that the board was not presented with all the information it needed to make an educated decision.
But Marilyn Tremblay, RMC chief information officer, said the two bids were brought before the entire board in a slide presentation.
Tremblay said the $4.5 million Meditech price was a base price. The Meditech bid would have had other costs, including system implementation.
“In the end, there was a $200,000 difference between the total cost for Meditech project for five years and the Cerner project for five years,” she said. “The Cerner project was the lower number.”
Hospital officials say the final cost for the Cerner Corp. contract over a five-year period was $11.9million and Meditech was $12.1 million.
The five-year total cost of the project was $15.8 million. Tremblay noted the board also decided to purchase a redundant system to ensure data backup.
Covington said his research of the two products revealed that Meditech would be more appropriate for the RMC and that a redundant system is “foolish.”
“They tell me that nobody has ever put a redundant system in,” he said. “They say it takes a 100-year tsunami to hit the East Coast for what we need in a redundant system. I just don’t believe it is the right fit for us in the first place.”
Other trustees questioned why Covington brought up an issue already decided by the board.
“We already voted on this one time. Why are we going back to this?” trustee Milton Dufford said.
In April, trustees voted 8 to 4, with one abstention, for the contract with Cerner.
Trustee Athaniel Badger agreed with Dufford, noting the project was approved with the information presented.
“Those of us who did not take the plane trip out there may not have all the information,” Covington said.
Some of the trustees have expressed concerns about not being informed of a trip to Missouri to view the technology. Dufford said about three members of the board went to view the technology.
“I don’t see how we could have taken off with 14 more (trustees) with the need of cash,” Dufford said.
Trustee Dr. John Hutto said the medical staff was not pleased with the Meditech product and defended Tremblay.
“She is not going to sacrifice her personal integrity by giving us false information,” Hutto said.
“I don’t think Marilyn is so thin-skinned to not understand that we have a responsibility to question things when things should be questioned,” trustee Dr. Oscar Butler said.
Covington said he has “been in the business a long time” and knows numbers can be “steered” according to desires.
Series 1998 bondsJason Sussman of KaufmanHall provided trustees with several alternatives to consider in addressing the hospital’s outstanding Series 1998 bonds.
Sussman recommended the board consider paying off the outstanding $17.7 million by selling new variable rate bonds and getting a letter of credit enhancement. Under a letter of credit enhancement, a bank’s credit rating would be used for better backing of the bond.
The process would take about two or three months to implement.
“We were happy with the structure originally. Let’s stay with it and the variable rate,” Sussman said. “The rates have been going good.”
In 1998, the hospital issued a $30 million variable rate demand bond through Ambac Assurance but, in February of this year, Fitch downgraded Ambac’s credit rating from a AAA to AA, prompting bond purchasers to get cold feet.
If Ambac’s rating does not improve or the hospital does not find an alternative, RMC’s interest rate on the bonds could increase.
Sussman said under the letter of credit/variable bond rate scenario, in two or three years the hospital could make new investments which would create capital capacity and help the hospital remain competitive in the marketplace.
Under Sussman’s recommendation, the hospital’s operating margin would increase to about 1.07 percent. The operating margin would be below the Standard and Poor’s current A- target of 1.80 percent.
A hospital’s credit rating is an indication of its financial strength and borrowing capabilities. The better its bond rating, the cheaper it is for the hospital to borrow money.
The number of days cash on hand the hospital would have under this scenario would be 137 days in 2009. In 2012, the number would be 132. The S&P’s A- target is 170 days. The BBB rating is 156 days.
“You will have to continue to make investments,” Sussman said, explaining that if the bond was paid off “in one fell swoop” the days cash on hand would immediately fall to about 109 days. By 2012, the hospital’s days cash-on-hand would be 117 days, he said.
Sussman said the drop would most likely result in an immediate rating downgrade, negatively impacting the hospital’s ability to borrow and reinvest.
“If we have a major capital item and you have to go to the credit market, we would be sitting with a relatively light operating margin and low cash numbers with days cash on hand,” he said.
Under the bond pay-off scenario, the operating margin would be 1.23 percent in 2009, and 1.28 percent in 2012.
Covington repeated his belief that paying off the debt is not such a bad avenue to take.
“It costs you to borrow money,” Covington said. “This particular situation puts a burden on the employees of the hospital where they have to increase profit margin on operations because of the bad financials. You can write the check and you will double profit margin right there.”
“We can still go to the bond market, we may be speculative, but I don’t think we will be speculative for two or three months,” Covington said.
“I would absolutely and categorically disagree with you on that,” Sussman said. He claimed that if the hospital went to the capital market in 2012 with an operating margin of 1.28 percent and days cash on hand of 117, the hospital’s interest rate on any borrowing package would be in the 7.5 percent range rather than about 4.2 percent.
Trustees also discussed other alternatives such as doing nothing with the bond, borrowing money from a bank, using fixed-rate bonds and paying half the bond off with cash and refinancing the remaining portion.
The information will be presented to the board for further review at a planned budget workshop Tuesday, Sept. 9.
T&D Staff Writer Gene Zaleski can be reached by e-mail at gzaleski@timesanddemocrat.com or by phone at 803-533-5551.